from the because-. dept

Oh, Comcast. Remember how it was going to try to be a bit more subtle in pushing for approval of its merger with Time Warner Cable? Well, you can only deny your true nature for so long. The main force behind getting the merger approved, Comcast's Executive VP David Cohen -- the company's most powerful lobbyist who isn't registered as a lobbyist because he's realized that as long as he says he's not lobbying, he isn't -- has announced that no one knowledgeable or reasonable has objected to the merger. By implication, of course, this means that everyone objecting to the merger is ignorant and unreasonable:

"I have been struck by the absence of rational, knowledgeable voices in this space coming out in opposition or even raising serious questions about the transaction." Cohen added.

Meanwhile, the obviously ignorant and unreasonable Writers Guild of America West has spoken out against the merger, noting that Comcast's increasing use of broadband "caps, tiers, metering or other usage-based pricing" could create serious problems in killing off competitive online video distributors. And the eminently knowledgeable and reasonable Comcast retorted that it doesn't have any caps at all. Oh no. It's merely "testing data thresholds."

"We don’t have data caps — and haven’t for about two years," said Sena Fitzmaurice, Comcast’s vice president of government communications. "We have tested data thresholds where very heavy customers can buy more if they want more — but that only affects a very small percentage of our customers in a few markets."

Apparently, spewing complete bullshit is the only thing that counts as "reasonable" and "knowledgeable" in the minds of Comcast's top execs.

HP directors and bankers calculated how much revenue Autonomy would have to add over 10 years to justify such a price. Autonomy’s trajectory alone wouldn’t get there. The deal required assuming more revenue growth as a result of the tie-up than HP usually assumed in acquisitions, said people familiar with the matter. But the directors believed they could make the numbers.

Those calculations were done without knowledge of the alleged fraud but who cares? Here is, roughly, HP’s thought process:

Autonomy’s DCF value is Y1 based on expected revenue growth but no synergies

Y1 < X

Well but the DCF value is Y2 with regular-to-aggressive synergies

Y2 < X

Well but … well we could make up another number Y3

Y3 >= X

LOOKS GOOD.

If you notice that current revenue numbers are made up, then that changes Y1, but Y1 isn’t an input into Y3 – the actual value that HP put on Autonomy – because that number was also just made up. “Synergies” was just a plug to get the equation to balance. The bankers’ math in the board book to approve the deal was just there to be soothing – directors get twitchy3 if they can’t look at a football field slide while approving an acquisition – not to have an impact on the outcome. You can hypothesize that HP would have rejected the deal if it had known Autonomy’s true revenue situation, because then the valuation numbers wouldn’t work, but that is a silly hypothesis because even using fake4 revenues the valuation numbers didn’t work and it didn’t reject the deal.

That is too glib – off by a lot is worse than off by a little, and “oh you’re a massive fraud actually” is a great point to make in negotiating down the asking price – but I think it’s the right analysis. As Usha Rodrigues writes, “The die was cast on the Autonomy acquisition when the HP board picked Apotheker, a CEO ‘bent on a high impact acquisition.’” If you have a CEO who really wants to do a deal, and a deal he really wants to do, it’s hard to imagine that some accountant coming to him with some minor boring technical quibble like “all these revenues are fictitious” would cause any more trouble than – well, than some banker coming to him with some minor boring technical quibble like “the price you are paying is more than the discounted cash flow of this asset to you.” Shut up, nerds! We’re doing important CEO business here!

How should this make you feel about the social value of M&A? Sort of same as you always felt? Some deals are good and some are bad, and CEOs tend to like making acquisitions because they are optimists and doing acquisitions makes them feel like big shots, and boards should try to shut down acquisitions that are bad for shareholders, but sometimes they don’t because country clubs etc. Everyone knew that already; this anecdotal confirmation is pleasing but, after all, just anecdotal. I’m sure HP’s current CEO would never do an acquisition that might destroy shareholder value.

How should it make you feel about Dragon Systems? Dragon, you’ll remember, sold itself for stock to a company that turned out to be a giant fraud and whose stock turned out to be worthless; Dragon’s shareholders then went out and sued their ragtag team of junior investment bankers at Goldman for not noticing that the acquiror was a giant fraud. And one of those junior bankers testified that they did a “great job” for Dragon, insofar as “We guided them to a completed transaction.” This got them made fun of a lot, here and elsewhere, but you get the sense Apotheker would approve. Dragon’s, and HP’s, bankers saw themselves as service providers, providing a particular narrow service – roughly, transaction execution – and leaving other services (auditing, fraud detection) to other providers, or no one, as the case may be. It was clear – to the bankers, and HP, though perhaps not to Dragon – who was in charge of the deal, and it sure wasn’t the bankers.

One popular and reasonably promising path to medium-term success as an investment banker is to tell clients what they want to hear. This is good because then clients will find you pleasant to be around; it’s also good because what they want to hear is frequently “oh yeah you should totally do this transaction that involves paying investment banking fees.” So there’s a synergy there. CEOs, after all, tend to (1) want to do stuff, (2) want to do big stuff, and (3) have a high degree of confidence in their ability to make investing decisions. If those decisions are systematically biased toward destroying shareholder value … well, I mean, we just work here, y’know?

1.Though you should read the rest because it is pretty entertaining? Like this is good:

HP became aware that bloggers and some financial analysts had claimed in the past that Autonomy was aggressive in its accounting. HP asked Autonomy’s [CEO] Mr. Lynch about how his firm recognized revenue, receiving answers and documents that allayed concern, said HP General Counsel John Schultz.

Bloggers! That happened right after the acquisition agreement was signed, as did this: “[HP board chairman Ray] Lane spoke to senior HP executives and found a near-universal view that their CEO wasn’t right for the job.” Imagine being a board chairman and sidling up to like the CFO and saying “hey, everything good with this Apotheker dude?” and the CFO saying “no he’s horrible you have to fire him.” And you’re like, hmm, that’s discouraging. And you check in with the COO and hear the same thing. And then you ask everyone and get “a near-universal view that their CEO wasn’t right for the job.” Never mind the big acquisition you just signed. “Gee, you know that information really would’ve been more useful to me YESTERDAY,” you might find yourself thinking.

2.Which we’ll take as a given: it’s a 50% premium to market price, which “wasn’t unusual for a software deal.”

from the another-one-bites-the-dust dept

The major labels have been dropping one by one. Of course, they never "die out" completely... they just get weak enough until someone buys someone else. The Big Six became the Big Five when Universal took over Polygram. The Big Five became the Big Four when Sony (formerly CBS Records) and BMG effectively merged. And, now we're down to the Big Three as Universal and Sony pick off the remains of EMI. This was pretty much a foregone conclusion that there would be some sort of merger, when Citibank took over EMI after EMI defaulted on its debt obligations. Universal is picking up the music division for $1.9 billion while Sony gets the publishing side for $2.2 billion. Universal was already the world's largest record label, so adding the likes of the Beatles, Coldplay and Katy Perry to its roster must be appealing. Of course, there's some concern among regulators that this raises antitrust questions, but I really don't see the issue here. Universal Music has been self-imploding by failing to adapt. I don't see how merging it with EMI will do much other than to allow it to continue to be a nuisance and continue to not understand how to embrace the internet. Besides, spending $1.9 billion for more back catalog, rather than investing that kind of money into actually adapting? If anything, this simply accelerates the decline of these labels.

from the too-late dept

With so much attention paid to the new generation of music subscription offerings, Spotify, Rdio and Mog, it appears that the last generation, Napster and Rhapsody, decided the best course of action was to join forces in bitterness at the fact no one mentions either of them any more. The two companies have gone through a variety of different owners over the past decade or so, with Rhapsody being spun out from RealNetworks last year, and Napster being under the Best Buy umbrella for a while -- where almost nothing was done to build up the service. I recognize that the two companies may be annoyed that no one cares about them any more, but I really can't see either establishing enough of a presence to get back into the conversation.

from the ooops dept

NBC Universal is probably wishing that people didn't remember stuff from a few years ago right now. The folks over at the National Journal dug up NBC Univeral's vehement opposition to the AOL/Time Warner merger, which used all sorts of arguments that I would imagine NBC Universal would prefer were not used against its pending merger with Comcast. The letter, sent to the FCC in July of 2000 included this point:

"Given the size and scope of the proposed merged company, AOL/Time Warner will have both the ability and the incentive to discriminate against unaffiliated content providers such as NBC."

Furthermore, NBC Universal was quite worried about how that deal would impact net neutrality and asked the FCC to make clear net neutrality principles if it allowed the merger to move forward, asking the FCC:

"to establish firm principles of non-discrimination in the treatment of unaffiliated content providers in the broadband services marketplace"

Of course, Comcast is now very much against that concept.

Not surprisingly, the letter was signed by NBC Universal's General Counsel, Rick Cotton, who has a long history of sticking his foot in his mouth in saying things he later regrets -- such as his still hilarious quote about how corn farmers were being harmed by movie piracy, and who was a major source for the bogus Hollywood propaganda piece on 60 Minutes. Still, you have to imagine that he now regrets that letter -- and the fact that reporters have now brought it back to light.

from the doing-things-the-right-way dept

Redbox, the company that rents DVDs out of automated kiosks for $1 per night, has been bought for up to $176 million by its biggest investor, Coinstar. It was hard to dislike Redbox: the company was having a lot of success in a space where other companies hadn't, by creating a convenient and easy to use service that delivered at a great price. Plus, anything that gets Hollywood's knickers in an enormous twist generally is pretty good. Universal Studios, in particular, tried to hamper Redbox through threats leading to lawsuits (update: clarified that Redbox filed the lawsuit... in response to a threat from Universal), perhaps hoping to kill the company off before launching rental kiosks of its own. But rather than try to destroy Redbox, Hollywood (and plenty of other people) should learn from it: the way to success isn't by putting all sorts of obstacles in the way of your customers' happiness, it's by providing them a service they want, delivered in an easy way, with a lot of value.

from the election-day-festivities dept

Well, it's election day and apparently the FCC commissioners liked voting so much they took votes on just about everything. Amazingly, it looks like they even made some good decisions. The big one, of course, and the one that will get the most press, is the unanimous vote to free up television "white space" spectrum. While the NAB made a last ditch effort to stop this, the FCC made the right call here. This spectrum can be put to much better use, which can have a huge impact on increasing innovation and wireless technologies. This is a big win. The FCC also approved Sprint and Clearwire's deal to set up a joint venture for their WiMax operations, as well as allowing Verizon to buy Alltel. Both of those deals make sense as well, so it's good to see them approved.

Other than that, the FCC said that it's going to start looking into the pricing policies of cable companies... and Verizon. Who's missing? FCC boss Kevin Martin's best friends over at AT&T. To be honest, while it's quite likely that the cable companies and the telcos (yes, including AT&T) are abusing their oligopoly position, the answer shouldn't be having the FCC act as a watchdog over pricing policies, but for a better system to be set up that encourages real competition. In the meantime, though, can someone explain why AT&T was left out of the bunch?

from the yawn dept

Napster, which now has almost nothing other than its brand to connect it to the revolutionary music sharing service Shawn Fanning launched nearly a decade ago, is about to undergo its latest shift, as Best Buy has bought what remains of Napster for $127 million, representing a hefty premium on the already pretty weak valuation of the company. Ever since Roxio bought Napster -- and renamed itself Napster -- the company has tried to position its music subscription offering as a huge success, but there's been little evidence to back that up. Now selling off to Best Buy for such a low price pretty much confirms that there wasn't much there.

from the changing-times,-changing-business-models dept

Lots of folks who follow the music space are aware of CD Baby, who has helped independent artists sell their music for years. It basically was a one stop shop for many independent artists, getting their music available in a variety of different places, for either download or physical CD sale. Earlier this week, the company was bought out by Disc Makers, the aptly named company that manufactures CDs and DVDs for independent musicians and filmmakers. The two companies had worked together as partners for many years. Still, what strikes me as most interesting about this is that Disc Makers clearly is recognizing that relying on the physical disc reproducing business to keep growing is a likely to be a losing bet. So, it appears to have come up with a decent plan for positioning itself for the changing market. If only other businesses were willing to do that.

from the try-try-again dept

You may remember back in 2001 that EchoStar, then owners of the DISH Network, tried to buy DirecTV from then owner Hughes (who was owned by GM at the time). However, after the Justice Department said no to the deal over antitrust concerns, it fell apart. However, the rumors going around are that the two companies (now just DISH Network and DirecTV, sans various parent companies) are thinking about trying again. Apparently, they believe that the regulatory and competitive environment that doomed round 1 wouldn't happen in round 2. And, of course, this time around, they can point to the fact that the two satellite radio systems, XM and Sirius, were allowed to merge (even if it took a year and a half).